Nick Clegg: a coalition would have been impossible without his economic change of heart. Photograph: Andy Rain/EPA

What a time to be a Whitehall-watcher! A perfect storm of a general election led to a partnership that still seems too good to be true. Business is baffled; journalists have turned into Kremlinologists, studying every nuance of the coalition; and the great bulk of the public sector is depressed and anxious, waiting for the sword to fall.

The holiday season could have provided a welcome respite from the often bewildering and breakneck day-to-day since the May election, but even this has been interrupted by the blood being spilled, and dripping into the headlines, over the autumn spending review. Last weekend's dust-up between George Osborne and Iain Duncan Smith, and the summer-long skirmishing between the chancellor and Liam Fox, are the key Tory-right battlegrounds, while nuclear (both civil and military) continues to faze the Liberals.

Under the surface of the government, a discernible shift is taking place. The New Labour years were strange for the Treasury. Undoubtedly, Gordon Brown's iron control of the Exchequer expanded its role and made it feared, but this was in direct opposition to the historically stronger prime ministerial domain of No 10 and the Cabinet Office. When Brown finally got the top job, he took many of the major functions and key officials with him, meaning that budgets and the responses to the banking crises were all led from No 10.

Shorn of its 1997-2007 stature as the "great recession" took hold, the Treasury's reputation – and self-confidence – went to the wall. The fag-end years of New Labour saw it at its lowest ebb for a generation.

But now the Treasury is on the front foot, notwithstanding the Office for Budget Responsibility own goal and the fact that all efficiency measures also pass through the hands of Francis Maude in the Cabinet Office. Osborne has impressed with his determination to stamp his seal on the coalition. Inside the civil service, there is respect for David Laws's replacement as chief secretary, Danny Alexander, and the clarity of the 25% cuts message for all bar health and DfID.

The cabinet is pretty united in the accelerated cuts agenda with ministers vying to outdo each other, sometimes without checking all the facts – as demonstrated by Michael Gove's school-building difficulties or the vigorous defence by the Audit Commission of its spending. The only department that has apparently rejected the underlying philosophy is the Welsh Office, offering reductions of only 5%.

Treasury civil servants themselves also have their tails up. Their historic status as the best and brightest in Whitehall took a battering but is returning, as is their reputation for brutality. "They've always been bastards – but clever bastards" is the view of one retired mandarin. Experience and nous are at a premium to avoid needless damage in such challenged times. Many in the Civil Service are of the opinion that cuts of up to a third are practicable, and could even lead to better government, but only if they are the right cuts. However, few believe the necessary sophistication and agility is apparent.

Yet, for all the hyperactivity, everything is posturing until the review is announced and the cuts bite. At that point, the discomfort of the Liberal Democrats is sure to intensify and call into question the coalition – especially as Labour will have a new boss.

History will have a field day with the first months of Nick Clegg as deputy prime minister. What a story! Very much up after his star turn in the leaders' pre-election debates, very much down the morning after the polls, we now know that he hoodwinked an admittedly not unhappy David Cameron during the negotiations over AV, leading his party into a pally formal coalition with heretofore enemies. This was only possible by performing a U-turn over emergency budget cuts. The Lib Dem manifesto said: "We will begin our term of office with a one-year economic stimulus and job creation package." According to Clegg, this change of heart came after a private conversation regarding European sovereign wealth funds with the governor Mervyn King, who has subsequently denied that he said anything new.

Understandably said to be "frazzled" before his stint as a not-quite-stand-in-PM, the DPM's position was further pressurised this week when the comprehensively respected Institute for Fiscal Studies concluded that the emergency budget was not the beacon of progressive social solidarity that Osborne and Clegg had claimed, but "clearly regressive". Osborne can surely live with this but, for Clegg, little could be worse. Unwisely, but perhaps unavoidably, he went on the offensive, describing the report as "partial", something few before have said about an IFS publication.

While the philosophical concept of an electoral mandate is very hazy, there were many who voted Lib Dem expressly to keep the Tories out, and with it their determination to balance the budget in one parliament. How fascinating to ponder if Clegg's volte face will be the real reason the current voting system is reformed in future years. And one wonders what more the next 100 days have in store.

Dr Jon Davis is a lecturer in the School of History at Queen Mary, University of London